Key points of investment:
An ADC cutting-edge innovative pharmaceutical company with a vast pipeline value that is about to be realized
As a powerful ADC platform-based innovative pharmaceutical company, the pipeline value was highly recognized by MSD. The maximum total transaction amount for SKB-264 reached 1.4 billion US dollars, and the maximum total transaction amount for the 7 ADC projects under development was nearly 9.5 billion US dollars. Products such as the SKB-264, A166, and A140 are about to enter the commercial cashout period.
The global market for high-carcinogenic drugs continues to expand
Lung cancer is the most common type of lung cancer. Among them, non-small cell lung cancer (NSCLC) is the most common type of lung cancer. NSCLC patients worldwide are expected to grow from 2.04 million to 2.46 million in 2023-2030, with a CAGR of 2.7%. The NSCLC targeted drug market will reach 46.3 billion US dollars in 2023, and will continue to expand in the future.
Breast cancer is one of the most common types of cancer among women worldwide. In 2023-2030, the number of breast cancer patients worldwide is expected to increase from 2.38 million to 2.67 million, or 1.6% CAGR; the global breast cancer drug market is expected to grow from US$40.6 billion to US$69.9 billion, or 8.1% CAGR.
Differential innovation: MSD is expected to create the best-in-class Trop-2 ADC, and frequently launch global phase III clinical trials for SKB-264, covering indications including lung cancer, triple-negative breast cancer, HR+/HER2-breast cancer, gastric cancer, and endometrial cancer. Among targeted Trop-2 ADC products, SKB-264 has the potential to be “best-in-class”, showing best-in-class efficacy data for multiple indications, and can also better balance off-target toxicity and toxicity in target tumor removal in terms of safety. It is expected that SKB-264 will be approved for marketing in China in 2024 for the treatment of triple-negative breast cancer (TNBC), and subsequent expansion of pan-tumor indications will continue to contribute to sales growth.
A number of potential products are about to enter the commercial cashout period
As another core product of Colombotech ADC, A166 (HER2 ADC) is mainly used to treat advanced HER2+ solid tumors. KL-A166 is expected to be approved for marketing in China in 2024 and become the first domestically produced ADC approved for HER2 positive breast cancer. Global sales of cetuximab antigen research drugs reached US$1.1 billion in 2023, and sales in China reached 1.67 billion yuan in 2023Q1-3. A140 is expected to become the first domestically produced cetuximab biosimilar drug, mainly for indications such as colorectal cancer and head and neck squamous cell carcinoma.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 13.38/15.46/2200 billion yuan, respectively, with year-on-year growth rates of -13.16%/15.59%/42.25%, respectively, and net profit to mother of -6.20/-745/ -135 million yuan, respectively, and EPS of -2.78/ -3.34/ -0.61 yuan/share, respectively. In view of the large differences between the company's business segments, we used the DCF valuation method to give the company a target price of $187 for 2024, corresponding to HK$206 (calculated based on RMB 1 = HK$1.098), and a target market value of HK$45.9 billion. For the first time, we covered it and gave it a “buy” rating.
Risk warning: Drug development falls short of expectations, industry competition intensifies, drug sales fall short of expectations